Starting a new business can be difficult, and the first and most important decision you may have to make is choosing the right kind of business structure for your company. There are multiple types of businesses, and each has advantages and disadvantages. However, by comparing your ownership status within each structure, you can begin the process of choosing the business that is right for you.
If you want to be the sole owner of your business, than you most likely want to start a sole proprietorship. This is the most common structure for new businesses, and some of today’s largest corporations started with a sole proprietorship. You are the only owner, meaning all profits come back to you, but you are also responsible for the company-if your company fails, it is on your shoulders to pay debts and to pay employees’ paychecks.
A sole proprietorship may not work for you. Instead, consider a general partnership. This is another common start-up structure for business and works especially well for family businesses. In this case, all partners own a certain percentage of the company, and this percentage determines the profits given to each person as well as the financial responsibilities of each person. For example, if a company fails and has $10,000 in debt and ten equal general partners (that is, they all own the same percentage of the company), each partner is responsible for $1,000 worth of the debt. You can have an unlimited number of general partners, but remember that all have a say in the business as well.
Limited partnerships have much of the same structure, but there are two types of partners: general and limited. General partners assume responsibility for the business, as in a general partnership. Limited partners, on the other hand, assume no responsibility if the company fails. Limited partners may be employees who have worked hard enough that you wish to pay them a percentage of the company’s earnings as their salary. The general partners lay out the exact terms of a limited partnership.
If your company grows to be very large or if you plan to have stockholders, you may wish to start a corporation. There are two types of corporations, depending on the number of shareholders, and each works in the same way when it comes to ownership. As the company’s president or CEO, you will want to own at least 51% of the stock, so that you own the majority of the company. Shareholders can invest in the company by buying pieces of it for smaller prices. If the company does well, they can share their piece of the business for a profit, but if the company does poorly, they lose their investment money.
Lastly, you can start an LLC. This type of company has “members” instead of partners and works well for medical professionals and accountants. The members generally have no obligations to the company if it fails, and there are an unlimited number of members you can have. This option may be best for you company, but remember to research all the business structures to find the one that is right for you.